High-Risk Work Is Selected From the Unassigned Delinquent Account
Inventory, but Some Unassigned Accounts Need Management’s Attention

February 2006

Reference Number:2006-30-030

This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.

This report presents the results of our review of the
Internal Revenue Service’s (IRS) unassigned delinquent account inventory.The overall objective of this review was to evaluate
and profile Taxpayer Delinquent Accounts (TDA)[1]
and Taxpayer Delinquency Investigations (TDI)[2]
that either had been shelved[3]
or were in the Queue[4]
inventory.

Synopsis

The Collection function maintains an inventory of unassigned
TDIs and TDAs in the Queue.As of April
18, 2005, there were 2.2 million TDI tax modules (tax periods) for 740,199
taxpayers in the Queue inventory. Also
in the Queue, there were 2.1 million TDA tax modules for 633,602 taxpayers who
had balance-due amounts totaling $23.3 billion.This represents a slight decrease for TDIs from the inventory at the end
of Fiscal Year (FY) 2004, while the volume of TDAs was relatively unchanged.

TDIs and TDAs that are not likely to be assigned because of
low risk scores and resource constraints are shelved.From FYs 2001 through 2004, 5.1 million
TDI tax modules (2.6 million taxpayers) meeting our overall criteria were
shelved.During the same time, 1.8 million
TDA tax modules (934,000 taxpayers) with balances due totaling $7.8 billion
were shelved.A significant number of
noncompliant taxpayers with shelved cases will never be contacted to resolve
collection-related issues other than through routine notices mailed to them.

Our review of accounts in the Queue and shelved accounts did
not identify any large groups of high-risk inventory that are not being
identified for assignment to Collection function personnel.Almost 81 percent of the business cases
in the Queue involve trust fund tax[5]
cases that are higher‑priority workload.Conversely, almost 96 percent of the trust fund taxpayers that have
shelved TDAs would not be identified as a high-risk case based on the total
amount owed by the taxpayers.However,
some Queue and shelved accounts warrant attention by the Collection function.

Some older[6]
TDAs are maintained in the Queue.Just
over 10 percent of the taxpayers have tax modules that have been in the
Queue for at least 1 year, 3.5 percent have tax modules in the Queue for
at least 2 years.With a constant flow
of new workload to the Queue and limited field resources, it is unlikely cases
that have aged in the Queue will ever be assigned for contact, especially if
they do not meet another high-priority criterion.

In addition, many TDAs that have been shelved do not have Federal
tax liens filed to protect the Federal Government’s interest.Almost 200,000 taxpayers with balances due of
$5,000 and over owe $5.1 billion, only $2.3 billion of which is protected by a
lien.We raised this issue in a report
dated June 2002[7]
and recommended that the Commissioners Small Business/Self-Employed (SB/SE)
and Wage and Investment Divisions develop a more uniform lien-filing policy to
better protect the Federal Government’s interest.The IRS agreed and included the issue in a
research project.The project is not yet
complete and the lien‑filing policy on shelved accounts is pending the
outcome of the project.However, while
our review was ongoing, the IRS made changes in workload-selection criteria
that should result in liens being filed on additional large-dollar TDAs.

The IRS shelved some TDIs without securing tax returns even
though the taxpayers made large payments toward potential tax liabilities.More than 55,000 TDI tax modules that have a
credit balance[8]
of at least $5,000 were shelved in the last few years.About 800 of these tax modules had credit
balances greater than $100,000.The
credit balances, especially the larger ones, are an indication that the taxpayers
expected to have taxable income or owe trust fund taxes for the year.

Recommendations

We recommended the Commissioner,
SB/SE Division, ensure the Collection function continues to review the program
that removes older cases from the Queue, establish lien-filing policies for
shelved accounts, and include credit balances as a selection criterion for
TDIs.

Response

The Commissioner, SB/SE Division, agreed with our
recommendations.The Collection function
will continue to review the automated program and has already identified
several enhancements.Research project
results will be used to determine and implement appropriate interim policy
changes for lien filing.In addition,
changes were requested to various automated systems to include credit balance
amounts in the risk-based methodology.Management’s
complete response to the draft report is included as Appendix VIII.

Copies of
this report are also being sent to IRS officials who are affected by the report
recommendations.Please contact me at
(202) 622-6510 if you have questions or Curtis W.
Hagan, Assistant Inspector General for Audit (Small
Business and Corporate Programs), at (202) 622-3837.

Taxpayers that have not filed their tax returns or paid the
full amount due on tax returns are not in compliance with Federal tax
laws.The Internal Revenue Service (IRS)
attempts to notify these taxpayers of their noncompliance through a combination
of methods.At a minimum, this consists
of routine notices sent to them through the mail.However, it can also include a telephone call
and/or an in-person (field) contact.Since the Collection function is unable to work all inventory receipts
with existing personnel, Taxpayer Delinquency Investigations (TDI) and Taxpayer
Delinquent Accounts (TDA) are prioritized using risk scores.The risk scores are based upon a number of
factors including the type of tax and amount owed.Workload is to be assigned for a telephone
call and/or field contact based on the priorities.See Appendix IV for a Glossary of Terms.

The Collection function maintains an inventory of unassigned
TDIs and TDAs in the Queue.The Queue
inventory comes from many sources.Most
of the Queue inventory is from either cases that have been assigned to
Automated Collection System (ACS) personnel and not fully resolved or cases
that bypass the ACS and go directly to the Queue when the delinquency was not
resolved by routine notices mailed to the taxpayer.

The Queue inventory consists of
prioritized cases that are not currently assigned to the Collection function and
cases that will not be assigned due in part to resource constraints.These cases are mainly available for
assignment to Collection Field function (CFf) personnel for in-person contact
with the taxpayer.However, the cases
can also be assigned to ACS personnel for contact by telephone.As of April 18, 2005, there were 2.2 million
TDI tax modules (tax periods) for 740,199 taxpayers in the Queue inventory. Also in the Queue, there were 2.1 million
TDA tax modules for 633,602 taxpayers who had balance-due amounts totaling $23.3 billion.This represents a slight decrease for TDIs from
the inventory at the end of Fiscal Year (FY) 2004, while the volume of TDAs was
relatively unchanged.See Appendix V, Figure 1,
for an overview of trends in Queue tax module inventory by fiscal year.[9]

TDIs and TDAs that are not likely to be assigned because of
low risk scores and resource constraints are shelved (removed from inventory).From FYs 2001 through 2004, 5.1 million
TDI tax modules (2.6 million taxpayers) meeting our overall criteria (see
Appendix I for criteria) were shelved.During the same time, 1.8 million TDA tax modules (934,000 taxpayers) with
balances due totaling $7.8 billion were shelved.A significant number of noncompliant
taxpayers with shelved cases will never be contacted to resolve collection-related
issues other than through routine notices mailed to them.

This review
was performed at the Small Business/Self-Employed
(SB/SE) Division National Headquarters in New Carrollton, Maryland, in
the Office of the Director, Collection, during
the period October 2004 through October 2005.The audit was conducted in accordance with Government Auditing Standards.Detailed information on our audit
objective, scope, and methodology is presented in Appendix I.Major contributors to the report are listed
in Appendix II.

Our review of accounts in the Queue and shelved accounts did
not identify any large groups of high-risk inventory that are not being
identified for assignment to Collection function personnel.During FY 2001, the Collection function conducted
reengineering projects to identify ways to make the function more
efficient.The Queue inventory was
studied at that time, and new risk‑score and workload-prioritization
criteria were implemented.As a result,
collecting trust fund taxes became an even greater priority for CFf personnel.In addition, the Collection function implemented
a last-in/first-out method for assigning these cases to prevent additional
accumulation of unpaid taxes on subsequent tax periods.Prompt attention to trust fund taxes is
necessary because these tax returns are due quarterly and tax deposits even
more frequently.

Almost 94 percent of the Business Master File (BMF) TDA
Queue inventory involves employment tax cases (see Appendix V, Figure 4)
and about 81 percent specifically involves trust fund tax cases.As a result of the large percentage of trust
fund tax accounts, approximately 67 percent of the BMF TDAs in the Queue
inventory are rated as high risk by the workload prioritization process
(Appendix V, Figure 6).Likewise, a
large portion of the BMF TDI Queue inventory involves employment tax cases,
resulting in a large percentage of high-risk TDI inventory being available for
assignment (Appendix V, Figures 8 and 10).

We also determined that few high-priority TDAs are being
shelved (Appendix V, Figures 14 and 15).Almost 99 percent of the Individual Master File (IMF) and 96 percent
of the BMF trust fund taxpayers that have shelved TDAs would not be identified
as a high-risk case for field assignment based on the total amount owed by the
taxpayers.While the TDIs do receive a
risk code score, the score is not available on the Master File.Therefore, we were unable to obtain risk
levels for the closed TDIs.

Although high-risk work is selected from unassigned
delinquent account inventories, some Queue and shelved accounts need Collection
function attention:

Some
older TDAs maintained in the Queue are not likely to be assigned to
Collection function personnel.

Many shelved
TDAs with large balance-due amounts do not have liens filed to protect the
Federal Government’s interest.

Some
TDIs were shelved without securing tax returns even though the taxpayers
made large payments toward potential tax liabilities.

While our review was ongoing, the IRS took a corporate look
at Collection function inventory and made some recommendations that are in
various stages of implementation.These
could have a positive impact on issues discussed in this report, especially on
TDAs with large balance‑due amounts.In addition, a Collection Governance Council has been formed that will
continue to look at ways to better manage Collection function inventory and
workload.Additional information
regarding the concerns mentioned above and actions the IRS is taking based on
these initiatives follows.

An automated process is in place that, in general, should
shelve lower-priority cases from the Queue after 52 weeks unless the cases meet
other specific criteria.The CFf criteria
for assignment of cases from the Queue are based on the age and type of
delinquency.Cases are assigned based on
a last-in/first-out methodology.This
policy coincides with the long-held belief that collection potential diminishes
as a case ages.In addition, the policy
is to enable personnel to resolve existing delinquencies before additional
delinquencies arise.With a constant
flow of new workload to the Queue and limited resources, it is unlikely that older
cases in the Queue will ever be assigned for contact, especially if they do not
meet another high‑priority criterion.

While 82 percent of the Queue TDAs (90 percent of
the taxpayers) had at least 1 tax module for the taxpayer that was less than 1 year
old (Appendix V, Figure 2), a significant number were more than 1 year
old.Figure 1 shows the results of our
analysis of the Queue inventory as of April 18, 2005.Tax modules with balances due totaling more
than $3.9 billion have been in the Queue for more than 1 year and more than $1.6
billion in balances due has been in the Queue longer than 2 years.The IMF data were not limited by type of tax,
but the BMF data includes only trust fund taxes.

As previously mentioned, a portion of the risk-level
criteria includes the amount of tax owed.This is based on the amount owed per tax module and the total balance
owed by the taxpayer.Based on the total
balance due amount for the taxpayer, almost 64 percent of the taxpayers
with accounts in the Queue more than 1 year and just over 62 percent of the
taxpayers with accounts in the Queue more than 2 years would not be considered
high risk.

By removing older cases from the Queue inventory that will
not be assigned to Collection function personnel, management will have a better
understanding of the makeup of the Queue and better information for inventory
decisions.

Recommendation

Recommendation 1: The Commissioner, SB/SE Division, should ensure the
Collection function staff continues to review the program for the automated
process that removes cases from the Queue to ensure that it is operating
properly.

A Notice of Federal Tax Lien is recorded in the County or State
in which the taxpayer has property.This
protects the Federal Government’s interest by publicly recording the debt owed
by the taxpayer as a notice to possible future creditors.The lien attaches to property currently owned
and to property the taxpayer may acquire in the future.Therefore, a lien may be filed even though
specific assets have not been identified.The IRS generally requires employees to consider filing tax liens on
assigned accounts when taxpayers owe $5,000 or more.Some exceptions include taxpayers in
bankruptcy, out-of-business corporations, deceased taxpayers without assets,
and other miscellaneous categories.

As Figure 2 shows, over 1.5 million tax modules (balances
due totaling $6.2 billion) for 798,783 taxpayers were shelved between
October 1, 2000 and September 30, 2004.Only $2.4 billion (38 percent) of the total amount due was protected by Federal
tax liens.The percentage of shelved
accounts protected with liens filed remained relatively constant for the 4 years.For accounts with a balance due of greater
than $5,000, only $2.3 billion (45 percent) was protected by liens.Federal tax liens were filed for only
46 percent of the larger balance-due accounts (greater than $1 million).

For this analysis, we excluded some shelved tax modules that
may have limited collection and/or lien potential.[10]The IMF tax modules include only those
taxpayers that were alive (no date of death on the Master File) and between 20
and 65 years old.BMF tax modules
exclude estates and include only those businesses that did not have a business-closed
date entered on the Master File.

Various TIGTA audit reports have been issued since August 2000
regarding the use of liens on accounts not in active collection status.In June 2002, we recommended that the
Commissioners, SB/SE and Wage and Investment Divisions, develop a more uniform
lien-filing policy to better protect the Federal Government’s interest and to provide
more consistent treatment of taxpayers.[12]This recommendation included shelved
TDAs.The IRS agreed and responded that
these lien‑filing issues would be included in existing SB/SE Research
Division projects.The project studying
lien filing on shelved accounts has been extended and is not expected to be
completed until May 2006.The IRS
lien-filing policy on shelved accounts is pending the outcome of the project.

The Research Division project is tracking the impact of
liens on shelved accounts for 1 year after the lien filing.This time period may be too short to capture
the full impact of the liens since a lien remains in effect until the liability
is satisfied, the liability becomes unenforceable by lapse of time, or a bond
is accepted in the amount of the liability.In addition, the project includes only those accounts closed based on a part
of the IRS’ reengineered case-selection process and not those closed solely due
to resource constraints.Many cases
mentioned here were shelved due to resource constraints rather than through the
case-selection process.

In addition, several of the recommendations from the IRS
review of Collection function inventory should result in liens being filed on
additional large balance-due cases.The
recommendations included revising the TDA assignment criteria for large-dollar
assessments.As a result, additional
large-dollar cases should be assigned to both the ACS and CFf.Employees will be required to consider filing
liens on these large-dollar cases based on existing IRS policy.

To further analyze these cases and obtain
updated information on the shelved TDAs, we performed Integrated Data Retrieval
System (IDRS) research on 50 IMF and 50 BMF (excluding estate) tax modules.We selected tax modules that had the largest
balance-due amounts.We determined that:

Twelve
of the 100 modules did not currently warrant additional collection
activity due to activity on the accounts since our data were obtained.In these cases the account is now fully
paid or payments are currently posting, an Offer in Compromise was accepted
or is pending, the taxpayer is bankrupt, the case was closed as hardship,
or the shelving was reversed.

Seven
of the remaining 88 modules were never assigned to the ACS or CFf and
would not have been subject to a lien-filing determination.[13]

Forty-eight
of the 88 modules did not have an indication of lien filing.The balance due on these tax modules
totaled $28.7 million, an average of $599,000 per tax module.

ØNine of 15 shelved IMF tax modules without a
lien had a balance due because the IRS prepared a substitute for return (SFR) for
the taxpayer.

Seventy-two
of the 88 modules have current filing requirements shown on the Master File.

Based on our research, we conclude that a significant number
of shelved balance-due accounts warrant lien consideration to protect the Federal
Government’s interest.In addition, a
lien would provide a viable incentive for taxpayers to arrange to pay their
outstanding tax liabilities.

Recommendation

Recommendation 2: The
Commissioner, SB/SE Division, should consider expanding the lien-filing
Research Division project to capture the impact of lien filing past the initial
1-year period and establish a lien policy for shelved accounts based on the
results.However, an interim policy
should be implemented based on the project results at the end of the initial 1-year
test period.In protecting the Federal
Government’s interest through lien filing, the policy should take into account
the dollar value of the accounts and should include accounts already shelved
and those that will be shelved in the future.

Management’s Response:The SB/SE
Division Collection function will determine and implement any appropriate
interim policy changes based on the data.In addition, the research project has been extended to capture the
impact of lien filing for an additional year.

More than 55,000 TDI tax modules for 37,813 taxpayers that
had a credit balance of at least $5,000 were shelved in the last few years.Almost 800 of these tax modules had credit
balances greater than $100,000.Figure 3
stratifies tax modules by amount where the taxpayer had not filed the tax
return, there was a credit balance[14]
on the tax module, and the tax module was shelved between October 1, 2000
and September 30, 2004.The
IMF portion includes only those taxpayers that were alive and between 20 and
65 years old.The BMF portion includes
only those taxpayers that did not have a business-closed date entered on the Master
File.[15]

To further analyze and obtain updated information on shelved
TDIs with a credit balance on the tax module, we performed IDRS research on 50
IMF and 50 BMF tax modules.We selected
tax modules that had the largest credit balance amounts.We determined that:

Forty-six
(16 IMF and 30 BMF) of the 100 modules did not currently warrant
additional collection activity to secure a tax return.On these cases, a tax return was filed, a
SFR was prepared, the credit was refunded or transferred to another tax
module, or the taxpayer no longer had a filing requirement.

Fifty-four
(34 IMF and 20 BMF) of the 100 modules could warrant additional collection
activity to secure a tax return.The taxpayers have current filing requirements on the Master File
and credit balances on the tax modules range from approximately $333,000
to $3 million.Of the 20 BMF
tax modules, 13 are for employment taxes with credit balances ranging from
approximately $333,000 to $2.4 million.

The credit balance amounts were primarily the result of tax
deposits made during the tax year and amounts paid when the taxpayer requested
an extension of time to file.One
requirement for extensions of time to file is that the tax must be fully paid
to avoid the assessment of interest and penalties.This is an additional indication that the
taxpayer expected to have taxable income or owe trust fund taxes, especially
since the extension requests are filed after the end of the tax year.

The IRS does not currently have a policy specifically for
credit balance TDIs.The IRS selects
TDIs for assignment using criteria that have traditionally been based on income
and projected balance-due amounts.In
addition, a TDI can be assigned as part of a TDA meeting the balance‑due
assignment criteria.Although credit-balance
TDIs may not meet these criteria, they present a good indication of
noncompliance with tax return filing requirements based on payments the
taxpayer submitted to the IRS.If these
TDIs are not resolved, the taxpayers could become noncompliant on additional
tax periods.In addition, the taxpayers
may not have sufficient credits with which to satisfy the tax liabilities of
the unfiled tax returns.

Recommendation

Recommendation 3: The Commissioner, SB/SE Division, should include
credit-balance amounts as a TDI selection criterion to bring taxpayers into
filing compliance.This criterion could
include the size of the credit and current filing requirements shown on the
Master File.

Management’s Response:The SB/SE
Division Collection function has requested changes to the various automated
systems that are used for case routing and assignment prioritization in order
to incorporate credit balance amounts in their risk-based methodology.Changes have been completed to some of the
applications; however, this change still needs to be synchronized with other
automated systems.

The overall objective of this
review was to evaluate and profile cases (Taxpayer Delinquent Accounts
(TDA) and Taxpayer Delinquency Investigations (TDI)) that either had been
shelved or that were in the Queue inventory.See Appendix IV for a Glossary of Terms.

To accomplish our
objective, we:

I.Determined if there have been any Internal Revenue
Service (IRS) reviews of TDA and TDI inventories that are not actively worked,
such as reviews conducted by the Research Divisions, the Small Business/Self-Employed
(SB/SE) Division Headquarters Collection function, or the Office of Program
Evaluation and Risk Analysis.

A.Obtained and
analyzed the results of any IRS reviews.

B.Determined if
additional reviews/studies are planned.

II.Determined the
characteristics of TDAs and TDIs that have been shelved or put in the Queue.

A.Obtained
the following data:

1.A Queue
electronic Delinquent Investigation/Account Listing as of April 18, 2005, from
SB/SE Division Headquarters staff.We
did not validate the accuracy of this data other than to ensure that our record
count matched the record count provided by the SB/SE Division staff.The output for TDAs consisted of 1,031,264Individual Master File (IMF) and 1,104,242Business Master File (BMF) tax modules for 343,392 IMF and 290,210BMF taxpayers.The output for
TDIs consisted of 520,482IMF and 1,665,411BMF tax modules for 325,117 IMF and 415,082BMF taxpayers.

2.Downloads
from the Master File of:

a)TDIs
closed with Transaction Code (TC) 597 (Surveyed) or 598 (Shelved) dated between
October 1, 2000, and September 30, 2004, that were not subsequently
reversed or did not have a subsequent return posting (TC 150).The output consisted of 4,407,353 IMF and 15,793,365
BMF tax modules for 2,615,017 IMF and 6,278,294 BMF taxpayers.We verified the accuracy of the criteria in the
download program by researching a judgmental sample of 87 accounts on the
Integrated Data Retrieval System (IDRS).

b)TDAs
closed with TC 530 (Currently Not Collectible), Closing Code 39 (TDAs closed
due to low risk scores or resource constraints) dated between October 1, 2000,
and September 30, 2004, that were not subsequently reversed and for which there
was still a balance due and a Collection Statute Expiration Date later than
September 30, 2004.The output consisted
of 1,217,708 IMF and 565,411 BMF tax modules for 643,226 IMF and 290,342 BMF
taxpayers.We verified the accuracy of
the criteria in the download program by researching a judgmental sample of 199
accounts on the IDRS.

B.Ran
queries to profile the data.Some
characteristics considered included taxpayer age, type of taxpayer, dollars per
module, dollars per taxpayer, modules per taxpayer, and repeater status of the
taxpayer.We ran queries against data
files containing all of the data meeting the criteria shown in Step II. A., not
sample data.

C.Analyzed the query results to determine whether
inventory priorities should be changed based on cases shelved or in the Queue.

1.Performed additional research on 100 shelved TDA and
100 shelved TDI tax modules using the IDRS to validate the results of our query
analysis.These were judgmental
samples.We selected tax modules with
the largest balance-due amounts for 50 IMF and 50 BMF shelved TDAs.For the shelved TDIs, we selected 50 IMF and
50 BMF TDI tax modules with the largest credit balances.

Automated Collection System
(ACS)– A telephone contact
system through which telephone assistors collect unpaid taxes and secure tax
returns from delinquent taxpayers who have not complied with previous notices.

Business Master File (BMF) – The Internal Revenue Service (IRS)
database that consists of Federal tax-related transactions and accounts for
businesses.These include employment
taxes, income taxes on businesses, and excise taxes.

Campus – The data processing arm of the IRS.The campuses process paper and electronic
submissions, correct errors, and forward data to the Computing Centers for
analysis and posting to taxpayers accounts.They were formerly known as service centers.

Collection Field function
(CFf)– The unit in the Area
Offices consisting of Revenue Officers who handle personal contacts with
taxpayers to collect delinquent accounts or secure unfiled tax returns.

Collection Statute Expiration Date – A time period established by
law to collect taxes.

Contact – A communication with the taxpayer to secure a tax return
that is past due or payment on a balance-due account.Contacts can be made via notices mailed to
the taxpayer, via telephone, or in person.

Corporate Income Tax
Returns– U.S. Corporation
Income Tax Returns (Form 1120) are returns used by corporations to report
the corporate income tax.

Delinquent Investigation/Account Listing (DIAL) – An inventory list
of Taxpayer Delinquent Accounts and Taxpayer Delinquency Investigations placed
in an assignment location such as the Queue or a Collection function group.

Integrated Data Retrieval System (IDRS) – The IRS computer system
capable of retrieving or updating stored information; it works in conjunction
with taxpayer account records.

Hardship Closing – A method of closing an account as currently not
collectible with a future income dollar amount that will trigger reactivation
of the case if the taxpayer reports income of the amount or greater.

Offer in Compromise (OIC) – An offer submitted by the taxpayer to
satisfy a tax liability when he or she does not have the financial means to
satisfy the liability or when there is doubt as to the validity of the
liability.

Queue– An automated holding file for
unassigned inventory.Inventory is
placed in the Queue until it can be assigned as workload for Collection
function employees or shelved due to lack of resources.

Revenue Officer– Employees in the CFf who attempt to
contact taxpayers and resolve collection matters that have not been resolved
through notices sent by the IRS campuses or the ACS.

Shelved or Surveyed Cases– These are delinquent unpaid
accounts or investigations of unfiled tax returns that have been taken out of
Collection function inventory because they are lower priority than other
available cases.

Substitute for Return – A tax return prepared by the IRS for a
taxpayer, who did not file a tax return on his or her own, based on income
information documents provided to the IRS by parties such as employers and
financial institutions.

Taxpayer Delinquent Account
(TDA)– A balance-due case of a
taxpayer.

Taxpayer Delinquency
Investigation (TDI)– A case for
an unfiled tax return of a taxpayer.

Tax Module (Period) – The term tax module refers to each tax return
filed by the taxpayer for a specific period (year or quarter) during a calendar
year for each type of tax.

Trust Fund Recovery Penalty (TFRP) - A penalty, applicable to
withheld income and employment (social security and railroad retirement) taxes
or collected excise taxes, that is assessed against responsible individuals of a
business when the business has failed to collect or pay over those taxes to the
Federal Government.

Trust Fund Taxes – Employment taxes that are collected by employers
from employees’ wages and later deposited with the Federal Government.

Figure 1.Number of
Delinquent Accounts (Modules) in the Queue Each Year.The Taxpayer Delinquent Account (TDA) Queue
inventory has been increasing during the last few years.This can be partially attributed to a change
in the case-selection method for Revenue Officers; cases are assigned to the
Queue before assignment to Revenue Officers.The volume of Taxpayer Delinquency Investigations (TDI) Queue
inventory has increased slightly since Fiscal Year (FY) 2001.In addition, a large number of TDIs is shelved
each year (see Figure 11).

Figure 1 was removed due to its size.To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.

Figures 9 and 10 were
removed due to its size.To see Figures
9 and 10, please go to the Adobe PDF version of the report on the TIGTA Public
Web Page.

Figure
11.TDA and TDI Inventory Shelved Each
Year.Large volumes of both TDAs and TDIs are
shelved each year due to resource constraints.These cases can be removed from this inventory for assignment, but most
will never be worked.This inventory is
largely low-priority workload.

Figure 11 was removed
due to its size.To see Figure 11,
please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

Figure 1.Shelved Individual Master File (IMF) Taxpayer
Delinquent Account (TDA) Tax Modules and Taxpayer Accounts.The IMF data includes only those taxpayers that were alive (no date of
death entered on the Master File) and between 20 and 65 years old.[18]

Figure 1.Shelved Individual Master File (IMF) Credit
Balance Taxpayer Delinquency Investigations (TDI).The IMF data includes only those taxpayers that were alive
(no date of death entered on the Master File) and between 20 and 65 years old.[22]

[3] Shelved
cases are TDAs or TDIs that have been taken out of Collection function
inventory because they are lower priority than other available cases.

[4] The
Queue is an automated holding file for unassigned inventory.Inventory is placed in the Queue until it can
be assigned as workload for Collection function employees or shelved due to
lack of resources.

[5] Trust
fund taxes are employment taxes that are collected by employers from employees’
wages and later deposited with the Federal Government.

[7]The Internal Revenue Service Should Modify
Its Federal Tax Lien Practices to Treat Taxpayers More Equitably and Better
Protect the Government’s Interest (Reference Number 2002-30-106, dated June
2002).

[8] A credit
balance on an unfiled tax return can be created when the taxpayer makes estimated
payments for a potential tax liability, applies overpayments from other tax
periods, makes a tax deposit when requesting an extension of time for filing a
tax return, etc.

[9] Many of
the calculations throughout the report are affected by rounding.All initial calculations were performed using
the actual numbers rather than the rounded numbers that appear in the report.

[11]
Appendix VI, Figures 1 and 2, separate the information contained in Figure 2 by
the IMF and BMF.

[12]The Internal Revenue Service Should Modify
Its Federal Tax Lien Practices to Treat Taxpayers More Equitably and Better
Protect the Government’s Interest (Reference Number 2002-30-106, dated June
2002).

[14] A
credit balance on an unfiled tax return can be created when the taxpayer makes
estimated payments for a potential tax liability, applies overpayments from
other tax periods, makes a tax deposit when requesting an extension of time for
filing a tax return, etc.

[16]
Appendix VII, Figures 1 and 2, separate the information contained in Figure 3
by the IMF and BMF.

[17] Many of
the calculations throughout this Appendix are affected by rounding.All initial calculations were performed using
the actual numbers rather than the rounded numbers that appear in the report.

[18] This is
criteria we defined during our review, not Internal Revenue Service (IRS) criteria.

[19] The IRS
requires lien determinations on assigned cases when the aggregate balance due
is $5,000 and over.